Popular Economic Weekly
Today’s ADP monthly private payroll report hints at what will happen with Friday’s ‘official’ nonfarm Labor Department unemployment report. ADP sees a slowing in job growth for January, to a lower-than-expected 213,000 for private payrolls and against ADP's upwardly revised 253,000 for December (initial estimate 241,000). Turning to government Labor Dept. data, the corresponding Econoday consensus for Friday's jobs report is 229,000 vs December's 240,000.
Some drop in midwinter payrolls is expected, but where are the strengths and weaknesses? Companies in the U.S. service sector grew slightly faster in January, but they also cut back on the number of people they hired, according to survey of senior executives. A similar ISM gauge for manufacturing sector employment also declined in January, slipping to 54.1 percent from 56 percent.
The two ISM employment indexes are generally a good indicator of trends in the U.S. labor market. Even though both were positive in January, they point to somewhat slower job growth in the first month of 2015.
Among the goods-producing sector, there were 48,000 new construction jobs in December’s payroll report, with Health care and social assistance the second-highest job total. Construction payrolls are up 677,000 from their lows in 2010, but still 1.62 million below its 2006 high during the housing bubble.
So if interest rates remain at their record lows, real estate construction jobs may continue to expand. Some 215,000 construction jobs were added in 2014, but total is still 1.6m below 2005 levels at height of the housing bubble.
The apparent slowdown in hiring among service and manufacturing companies at the start of a new year could be a hint that the U.S. job creation in January will fall short of December’s 252,000 mark, as we said. The Institute for Supply Management said its nonmanufacturing index edged up to 56.7 percent in January from 56.5 percent in December. Readings over 50 percent signal that more businesses are expanding instead of contracting.
The good news is that new orders remained very healthy. The index measuring fresh demand rose to 59.5 percent and remained close to a post-recession high. On the downside, the employment gauge fell 4.1 points to 51.6 percent, marking the lowest level in 11 months. It was also the second worst reading in 20 months.
The 213,000 increase for January ADP payrolls is the lowest since September which was also 213,000. Increases in ADP's data from October to December averaged 257,000. By industries, ADP reports the largest percentage gain for January comes from construction, up 0.3 percent or 18,000 jobs (vs. 48,000 in BLS Dec. report), and the lowest from manufacturing, up 0.1 percent or 14,000 jobs, and financial activities, also up 0.1 percent or 10,000 jobs.
So continued health of the housing sector will be key to higher economic growth in 2015.
Harlan Green © 2015
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